For 2023, Italy to impose a 40% windfall tax on banks

The Italian government approved a one-time 40% tax on profits banks receive from higher interest rates.

The country plans to use the proceeds to help mortgage holders. The Italian government's decision sent banking shares plunging.

Banks have made record profits as a result of sharply higher official interest rates because they were able to raise the cost of borrowing without increasing the rate they charged on deposits.

Windfall taxes have already been imposed on the industry by nations such as Spain and Hungary.

Only for 2023 will Italy impose a 40% tax on banks' net interest margins, a metric of income derived by banks from the difference between lending and deposit rates.

According to reporters, Rome expects to collect less than 3 billion euros ($3.29 billion) from the measure.

But some analysts' projections were higher.

At the end of last month, top Italian bank Intesa Sanpaolo said it expected to earn more than 13.5 billion euros this year just from its net interest margin.

Analysts at Bank of America estimated the new tax could cost banks between 2% and 9% of their earnings.

At 0757 GMT, the Italian banking index had decreased 6%.

Although the right-wing government of the nation had repeatedly criticized banks for failing to pass along the higher cost of money to depositors, action was only taken following the most recent round of record earnings announced by banks at the beginning of August.

Due to the increase in profits from higher rates, all of the major Italian lenders reported results that were significantly better than anticipated.